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Pawlenty calls for spending cuts

ST. PAUL - Gov. Tim Pawlenty proposes a mixture of state spending cuts, use of reserve funds and some additional tax revenue to fix a predicted state budget deficit of nearly $1 billion.

The Republican governor said Friday school classrooms and state aid to local governments would be spared from reductions under his plan, but health care, higher education and other programs would lose some funding.

Minnesota and the country face tough economic challenges, Pawlenty said. The governor sought the Democrat-controlled Legislature's willingness to work with him to fix the estimated $938 million state budget deficit.

"It's going to require some compromise. It's going to require some sacrifice," Pawlenty said. "It's going to require some changes, not just from the state but our partners who receive funding from the state as well."

While most of Pawlenty's supplemental budget - he and lawmakers approved a two-year, $34 billion budget last year - focuses on ways to fix the deficit, the governor did propose cutting the statewide sales tax by one-eighth percent.

He said that proposal -- which actually would add $77 million to the deficit -- is a response to transportation-related tax increases Democrats put into law and a proposed constitutional amendment to dedicate a sales tax increase to outdoors and arts programs.

"We need to be about the business of reducing taxes," Pawlenty said.

Sertich said lawmakers will consider Pawlenty's sales tax plan. However, Sertich also said the governor sometimes makes headline-grabbing proposals that "don't make it past the press release."

Pawlenty proposes using $250 million from the state's budget reserves to help erase the deficit. He also would use $250 million from a surplus health care fund and make $187 million in health and human services spending cuts.

Finance Commissioner Tom Hanson said Minnesotans on state-subsidized health care programs would not lose their coverage because of the budget cuts.

"Everybody who's currently on any of these programs will remain on it," said Hanson.

The University of Minnesota and Minnesota State Colleges and Universities systems would split $54 million in state spending cuts. The University of Minnesota's cut of $27 million is but a small portion of its total spending, Pawlenty said.

"It's a relatively small percentage change in their overall budget, on the heels of a large increase," Pawlenty said. Those cuts should not affect tuition and may be able to be covered with reserve funds, he said.

Assistant Senate Majority Leader Tarryl Clark, DFL-St. Cloud, said lawmakers will consider how Pawlenty's proposed cuts to higher education could affect Minnesota's work force years down the road.

Pawlenty said his plan includes no new taxes, but he wants to capture over $100 million in tax revenue from corporations with overseas operations, collect $10 million from delinquent taxpayers and raise some state government fees.

Democratic lawmakers also want to target those foreign-operating corporations, which they describe as closing a tax loophole.

Pawlenty also would cut most state office operating budgets by about 4 percent, excluding veterans-related agencies and the Department of Transportation.

His budget plan does include $62 million in new spending, mostly for education reform proposals, a rural Minnesota entrepreneurial development program and a planned fund for victims of the Interstate 35W bridge collapse.

The state budget must be balanced by June 30, 2009 - the end of the two-year budget period - but Pawlenty and Democratic lawmakers who control the Legislature say they will fix the projected deficit this year.

House Speaker Margaret Anderson Kelliher, DFL-Minneapolis, said lawmakers will pore over Pawlenty's budget recommendations before offering their own ideas to fix the deficit. That could take at least two weeks, she said.

"We also will be looking carefully to make sure that the governor is not using the ax on the most vulnerable Minnesotans," Kelliher said, referring to elderly and disabled citizens who rely on state health programs.